Frank left a link to this video from 28 August 2006 at On Market Monetarism
My reply to Frank on his point about “monetarism is dead” (which I may have misunderstood):
Peter Schiff restated monetarism in different terms – debt financed consumption – which blew bubbles. A bubble is another term for “local” inflation. Inflation in a sector of the economy.
Comments
13 responses to “A Real Laffer”
Maybe my understanding of monetarism is wrong. If their idea is that the control of money and credit by a central bank should be rational, to that extent they are right on. The market monetarism thesis is as good as any other, that is, correlate money growth to GDP rather than worry about price inflation. But if their thesis is that growth in the economy can be achieved by central bank money creation, then they are in the same camp as Krugman, just arguing about the rate of stimulus. They want a “rational” rate while Bernanke and Krugman will do anything to paper over our hollowed out economy.
Schiff is excellent at stating the Austrian position, which I find more compelling. What is wealth without production? Sure, we can eat our savings for awhile. Then what? That is what happened during the housing bubble. We cashed out equity in our homes at the urging of Greespan who made it very easy.
Right now the Fed is making it easy to put off the day of reckoning when we have to face what’s left after businesses have moved production offshore, the baby boom generation has retired, and 50% of young people are unemployed.
I won’t argue that Friedman was a good salesman for free market capitalism. But he accepted the idea of money manipulation and creation by a central bank as a panacea. Austrians believe that money should be more than a tool, that it should also be a store of value, that it should have intrinsic value, that it should have worth in and of itself, that it’s value should be subject to market forces outside the control of central bankers or politicians.
The video pits a supply side monetarist against an Austrian. I’m with the Austrian. Schiff, and Bury, were right. The monetarists were wrong and their theories are dead.
Frank: monetarism and market monetarism are different things, though related of course.
Monetarism basically says “variation in the money supply matters.” This is an extremely well-accepted notion. I like Schiff, but it’s clearly not dead.
But MM is in some ways a fusion of Austrian and monetarist thinking — for instance, MM is very skeptical of the utility of econometrics like inflation; one of the nice things about NGDP is that it’s a real number, not a derivation. And Scott Sumner has repeatedly argued that the proper fiscal multiplier is zero (and that the only time fiscal spending has any positive effect is when the central bank is not properly targeting NGDP).
A common misconception is that NGDPLT is always a looser policy, but in fact it would have been tighter enough during the housing bubble, enough to ameliorate the issues you refer to, because it’s naturally anti-cyclical.
Dave, I’ll investigate MM. I don’t have a closed mind on this.
M.Simon, there are those who believe that we are now in a Fed created bond bubble which will collapse with devastating consequences. Think Cyprus only much worse.
Frank,
I’m just waiting until the jugglers can’t keep all the balls in the air.
And to say that the money supply is not important is to ignore the monetary end of Wiemar or Zimbabwe.
And there is confusion – we may not have a good measure of inflation. But that is not the same as no measure. Or that inflation (money supply rising faster than production warrants) doesn’t matter.
As to tying money growth to GDP in MM theory, how do to account for government redefining GDP in a “just because we say so” effort to hide declining production?
http://www.washingtonpost.com/blogs/wonkblog/wp/2013/04/22/huzzah-the-u-s-economy-is-3-percent-bigger-than-we-thought-thanks-george-lucas/
One reason Austrians promote real money is what is now starting in Sweden. They are going cashless.
http://www.bloomberg.com/news/2013-04-10/era-of-paper-money-dies-out-in-sweden-as-virtual-cash-takes-over.html
I’m not a conspiracy nut, but it would benefit governments if currency disappeared. How would the entire underground economy function without it? Barter? Think war on drugs and billions in lost taxes. I believe we are heading this way in a few years.
Frank,
I don’t think there is any perfect system. What happens when gold asteroids start to be found? Inflation.
It happened to Spain when it stole New World gold.
What you need is reasonably honest operators, and a fairly transparent system.
I just know that people who think they are smart enough to “fix it” through Global micro-management scare me.
Almost all claim: Government spending is out of control, unsustainable, and uncurbed will:
Trigger total economic collapse
Democrats claim: Cutting government spending would contract the economy and:
Trigger total economic collapse
Republicans claim: Increasing taxes enough to significantly offset spending would:
Trigger total economic collapse
Democrats and Republicans claim: Letting ultra- big banks, financial firms, and businesses fail would:
Trigger total economic collapse
Libertarians say: Bail outs and safety nets prevent real recovery, increase moral hazard, and will in the end:
Trigger total economic collapse.
Oddly enough; I believe them all.
One problem with precious metals as a monetary base is that the growth of supply is limited and erratic. Development of sizable new sources can cause inflation but slow growth and/or depletion of old sources can cause deflation.
My guess is we’ll delay fully paying the piper for our credit follies till the “big fix”: World War III.
M.Simon, while it seems quaint and out of date to think of people carrying around gold & silver coins, and having convertible currency like the old silver certificates, the alternative we have now is unsustainable and unjust.
Honest operators and transparency? Please, with politicians running the show?
The last vestiges of personal autonomy will be lost when currency disappears and they inflict digital money on all of us. Perfect control from the top down. If the right is now worried about government access to medical records with Obamacare, and that little complex of buildings north of Provo, Utah that is to be the center of a vast data collection operation, just wait until it’s all tied together with digital money and credit. “Vee zee szat you are a drinker, citizen. Is very bad for your health. You have been denied access to beer and spirits until vee zee what herr doktor report says.”
My question on MM is just what would it do any differently from what the Fed is doing now? There’s enough liquidity out there to choke a horse, and it’s pouring into anything that looks like it might be a decent store of value. Dividend-producing equities, metals, real estate. No matter how much liquidity you force-feed the system right now, it’s not going to do anybody any good because anyone with any wealth is terrified that the government will confiscate it.
Monetary policy can’t fix deflation by confiscation.
Spot on, Neil.
Anyone willing to reconsider hard money should read David Stockman’s book, The Great Deformation. I’m in the middle of it now and it’s a blockbuster.
http://www.amazon.com/Great-Deformation-Corruption-Capitalism-America/dp/1586489127/ref=sr_1_1?s=books&ie=UTF8&qid=1367518553&sr=1-1&keywords=the+great+deformation
Guess I wrong about them needing digital money to invade our privacy and control us. It’s already here.
http://www.zerohedge.com/contributed/2013-05-02/irs-spy-our-shopping-records-travel-social-interactions-health-records-and-fi
From a comment at zerohedge:
Privacy monetized bitch!
What other rights can be monetized by USA Gov Inc?